Abstract
PurposeThe purpose of this paper is to analyse the changing nature of commercial leases with specific reference to the landlord and tenant relationship, lease lengths and incentivisation in the post-recessionary UK property market.Design/methodology/approachThe research applies data analysis utilising the Estates Gazette Interactive database coupled with survey analysis conducted across three UK cities to investigate and compare the changing nature of the commercial property leasing market and the landlord and tenant relationship.FindingsThe empirical analysis highlights that recessionary conditions prevalent in the market from the 2007 global crisis has caused a reassessment of lease structures, leading to shorter lease terms and increased use of incentives, as tenants have been empowered to negotiate more flexible leases due to their stronger market position.Originality/valueThis paper builds upon previous research conducted back in 2005, investigating commercial leases in the market up-cycle. The recent volatility in the commercial property sector requires fresh insights and in-depth analysis of lease patterns, length and covenant strength, which is fundamental for investor decision-making. In addition, past research has tended to consider solely landlord or occupier perspectives, whereas this research offers new insight into the landlord–tenant lease negotiation process.
Highlights
Commercial property has distinctive and unique financial features compared to other asset classes (Ball et al 1998, Davis and Zhu 2011)
The demand for space within the commercial rental market is driven by potential tenants with varying space requirements (Buttimer and Ott 2007), grounded on economic factors that influence the mechanics of the commercial property market
The empirical research has sought to clarify the importance of specific incentives across retail and office markets
Summary
Commercial property has distinctive and unique financial features compared to other asset classes (Ball et al 1998, Davis and Zhu 2011). The UK property market has historically been characterised by a cyclical behaviour of boom and bust periods, reflecting supply and demand peaks and troughs within the wider economy, and the inability of the property market to adequately adjust. Such recurrent and frequently asymmetrical fluctuations within the modern property market have profound impacts on all players in the industry and on the relationships between the economy, occupational leases and investment (Mulhall 1992, Scott and Judge 2000; Jadevicius et al, 2010)
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